EDITOR’S NOTE: This article is part of our Money254 Partner series produced in partnership with Absa Bank Kenya to celebrate the launch of their new digital savings account. For more on Money254’s editorial policy, read here.
In September last year, I came across an article explaining the hidden red flags that suggest one is living beyond their means.
At first, I scrolled down past the article after skimming the title on Facebook, feeling that it did not apply to me.
I had no debts, and I always had a few thousands left in my account by payday. Under extreme circumstances when the salary was delayed, I would take out a short-term loan but I definitely was not one of those people who, by the 15th of the month, lament that there is too much month at the end of the money.
A few days later, I came across the same article, this time in the family WhatsApp group - shared by one of my uncles.
Uncle Juma has peculiar investment rules, and often decries that young people are always buying big cars before buying a plot of land. Out of curiosity, I decided to read the article - just to see life from the perspective of a boomer.
The long and short of the story is that I had to summon myself for an emergency meeting after some eye-opening insights. Although I had no debts, I neither had long term nor did I have short term savings.
Even when I did save some money, it was haphazard and often got depleted as soon as my salary was delayed - even by a few days.
In the crisis meeting, held solo at my one bedroom apartment along Kiambu Road, I realised the need to follow a savings rule - and particularly through the 50/30/20 budgeting rule which I found to be the easiest to follow.
The 50/30/20 rule is a straightforward budgeting rule recommended for beginners that simply divides your take-home pay into three distinct parts. The operative guide is that 50% of your salary is reserved for “needs”, including rent, food, education, medical needs, etc.
The next 30% of your net income goes to what can be described as “wants”, personal desires, discretionary expenses, or lifestyle expenses such as entertainment, travel, eating out, non-basic clothing, etc.
The remaining 20% is meant for savings, which includes long term savings such as retirement, as well as short term savings, such as an emergency fund or to start a side business.
Let’s go back a little bit prior to my encountering the 50/30/20 rule.
In January 2022, I was promoted after a two-year wait (Covid-related) and my gross salary was bumped to Ksh80,000. It translated to a take home income of Ksh61,000 with some loose change.
Coming from a take-home of a few hundred shy of Ksh45,000, this salary bump was a big deal for me. And I did not waste time.
The very next month in February 2022, I moved to Kiambu Road and rented a Ksh27,000-a-month one-bedroom apartment. This is from my perfectly okay Ksh14,000 one-bedroom in Zimmerman. I just didn’t like the location anymore.
In my new Kiambu Road world, I would roughly spend another Ksh15,000 of my salary on food, a litany of other things I considered “needs” and servicing my higher education loan (Ksh3,000 a month).
An additional Ksh10,000 or thereabout would be spent on subscriptions, including gym and TV, WiFi, take outs, entertaining friends, among others.
Depending on the month’s activities, like whenever I skipped the occasional road trips to Naivasha, I targeted to have spared Ksh10,000 by the time my next salary arrived. I thought of it as my savings, although I did not have the personal discipline to keep myself in check.
After all, given how enthusiastically my boss had handed me this promotion, I thought I would soon enough be saving a lot more once my salary hit Ksh100,000.
Now back to September 2023.
The first thing I realised with my newfound knowledge of the 50/30/20 rule was that the amount I was spending on “needs” was really off.
The Ksh27,000 rent was already taking nearly half my net salary. According to the 50/30/20 budgeting rule, 50% of my take-home pay is supposed to cater to my basic needs, not just rent.
I had to come to terms with the fact that I had no good reason to live in a place where I was paying that much rent at my current income level.
Actually, the biggest reason at the time was that most of my work colleagues and friends were living around the area and I wanted to show that I was as financially capable as they were.
But on introspection, I realised many of them were earning way more than I was, and I could still enjoy their company even if I moved a few kilometres away to a more affordable house. Having only been working for three years since graduating at 24, I was punching way above my weight as compared to my more experienced colleagues.
The next weekend, I went round to a nearby estate and found a decent one-bedroom where I have been paying Ksh18,000 since October 2022. That leaves me with just about Ksh13,000 to spend on needs according to the 50/30/20 rule.
Next, I resolved to cut my spending on food and house basics from 15,000 to 10,000 per month; opting to cook more at home as opposed to ordering take outs and shopping at the soko. The remaining Ksh3,000 from my “needs” budget goes to repaying my education loan.
Now, there is the issue of “wants” - things that you desire. The 50/30/20 budgeting rule bundles all the little discretionary expenses and everything you crave that makes your life worth living into one bucket and advises that no more than 30% of your monthly income should be spent on them.
For my take-home pay, that is about Ksh18,000 available to spend on “wants”. My plan from September 2022 was to spend no more than Ksh10,000 on discretionary expenses and save the rest.
As I awaited my September salary, I had resolved to not go for more than one road trip a month, have a maximum of two nights out a month and generally stay indoors a little more since that’s where most of my unplanned spending happens.
All this to make sure I saved a minimum of Ksh12,200 each month - or 20% of my Ksh61k take-home pay.
By the time my September salary checked in, my current account had a balance of Ksh4,800. This is where I was starting my savings journey when October started, marking the first month of testing out the 50/30/20 rule.
Now living in a cheaper neighbourhood, even groceries were cheaper and also being able to overpower the pressure to “turn up”, October and November 2022 were successful months.
I was able to fully comply with the quite drastic budget changes and saved Ksh12,200 for each of these months. By the time I received my November salary on December 3, 2022, I had saved up a total of Ksh29,200.
Then things went wrong even before I could come around to reducing my expenditure on “wants”.
Some people say that all that starts well ends well. Well, that was simply not the case for my budgeting plan after a number of social and family events crushed my best laid plans in December 2022.
On Jamhuri Day, I attended a cousin’s Ruracio planning meeting in Rongai. Remember my “wants” budget cap? I had set aside Ksh6,000 for entertaining friends and family and related costs for the entire month. For this event, I intended to spend a maximum of Ksh3,000.
By the time the weekend was done, I had spent just about Ksh5,000 - Ksh2,000 above my budget - but there was still room for recovery - I told myself.
I travelled upcountry for the Christmas and New Year holidays on December 24, only to find the fare was double what I had expected to pay.
When I got home, the demand for my money was overwhelming and the people-pleaser in me showed, really badly.
It was not exactly new, but I had assumed that I would abide by my budget rule, since I had already had my Damascus moment, yaani mimi si yule mimi wa last year - I would tell myself.
But on the ground, it is hard to turn down that auntie asking you to pay for her dairy goat’s dewormers, that uncle whose prized Chinese smartphone screen has been cracked for months - or that routine call to buy a drink for your former classmate(s).
Then there are the more damaging costs; the kitchen roof is leaking, the gate needs to be repaired after the old man parked near and forgot to pull the handbrake, the mishaps never end!
By the time I was getting back to Nairobi in January, I was down Ksh25,000 in unbudgeted spending.
Since I did not have any extra income, the expenditure had completely depleted my savings - after all the hard work I had put in from the end of September.
After the December blunders, I started to realise some mistakes that I had not envisioned. The first one was that I rarely consulted other savers which denied me the advantage of learning from their mistakes.
Secondly, I had used my current account to channel (or rather to hold) my savings. This requires extraordinary discipline which I did not have. I always had instant access to this money and when you always have your debit card on you, you can imagine how easy it is to swipe away when your buddies chocha you into covering the next round.
“Nitalipa next time bro. Si unajua tu?” And that would be the last time this bill would ever arise in our conversations.
While I had a pre-set budget under the 50/30/20 rule, I made the mistake of not tracking my expenses under each of the sub-categories.
Tracking them would have helped me notice my erratic December expenditure - or at least anticipate it and create a mitigation plan in advance.
Despite the setback at the end of the year, I have been on a recovery journey since January and as I write this, I have followed the 50/30/20 rule to the latter - in my expenditure for January and February 2023.
One of the things that have aided my recovery journey is researching and consulting more experienced savers. In early January, I learnt about the Absa Digital Savings Account that a friend recommended to me.
The Absa Digital Savings Account is free to open online without ever needing to visit a branch by only submitting your basic KYC information on the Absa website.
You see, with the Absa Digital Savings Account, you can withdraw your cash in times of need and get it instantly.
I found this to be very attractive for my savings journey since it means you not only save - but you also earn money from your savings. This is as I plan on what I want to do with the money I will have saved by the end of the year.
Another change I made to my savings plan is to automate my contributions to the Absa Digital Savings Account to make sure no matter what, when my salary checks in, Ksh12,200 is immediately transferred.
I made a standing order on my salary account to deposit the amount into my Absa Digital Savings Account on every 28th day of the month - my employer always pays by the 25th or latest 27th of each month. I credit this automation to my 100% compliance so far since January.
I realised first-hand how treating my current account as my savings account was one of the surest ways not to progress in my savings journey. The temptation to withdraw, at least for me, is always too high.
Now, I am already thinking of increasing my savings from the minimum 20% the 50/30/20 rule advises. You will remember my plan on reducing the discretionary expenses - which forms 30% under this rule - and adding the amount saved to the savings bucket?
My goal is to save at least Ksh150,000 before the end of 2023. Wish me luck!